SINGAPORE, Oct 28 (Reuters) - Singapore's economy will grow below a potential rate of 4-6 percent in 2009 as the impact from a global financial crisis spreads across the whole economy and drags on previously resilient sectors such as manufacturing, the central bank said.
The Monetary Authority of Singapore said in its twice-yearly macroeconomic review report on Tuesday that the risks faced by Singapore's trade-dependent economy had shifted to slowing growth from rising prices, because the economic downturn has helped tame inflation.
It said it was ready to dampen excess volatility in Singapore's nominal effective exchange rate band, which it uses to set monetary policy by adjusting the strength of the Singapore dollar against a basket of currencies.
It said it had also temporarily increased the level of liquidity in the banking system.
"Growth will likely remain below trend in 2009," the central bank said on Tuesday. "Concomitantly, external and domestic inflationary pressures are likely to ease."
The government has said previously that the potential trend growth in the medium term is between 4 to 6 percent.
The central bank said prospects of Singapore's economy recovering in the latter half of 2009 will depend significantly on growth in the United States, Europe, Japan, and other regional economies.
Singapore's economy fell into a recession in the July-to-September period, the country's first recession since 2002, as manufacturing activity and exports slumped.
The central bank said Singapore's economy is expected to grow about 3 percent this year, with inflation hitting 6-7 percent in 2008 before easing to between 2.5-3.5 percent in 2009.
However, the central bank warned it will take time for the decline in prices to be reflected in the consumer price index.
"Headline inflation rates could be sticky downwards for a while as the prices of some goods and services continue to react to past increases," it said.
The central bank said Singapore's economy appeared to be experiencing the "second phase of the impact from global shocks".
"There are emerging signs that the adverse effects had spread from the vulnerable industries to segments that had previously been considered relatively resilient."
The recession prompted Singapore's central bank to ease monetary policy in October for the first time since 2003.
The central bank said on Tuesday it loosened policy in October because of "dissipating inflationary pressures and increased downside risks to growth".